The BP (LSE: BP) share price crept up just 4.3% last year. The FTSE 100 grew five times faster at 21.5%, so that’s severe underperformance. Over two years, the shares are down 9%. Is 2026 the year BP finally comes good?
Let’s not get too excited. There’s a long way to go. Some investors got carried away on Monday (5 January), deciding there was a big opportunity in Venezuela. They’re not excited today. It’ll take a long time to monetise Venezueluan crude, and BP may not even be involved.
Long-term investors have suffered 15 years of share price misery and strategic confusion since the Deepwater Horizon tragedy in 2010. Should they simply give up?
FTSE 100 dividend hero and villain
My answer here is no. Things have got so bad, BP is being forced to take radical action. Arguably, it started last year after by ousting CEO Murray Auchincloss after less than two years in the job. Meg O’Neill, former head of Woodside Energy, is the first outsider to lead BP in its 116-year history. She’s said to be a tough nut.
BP plans to become a “simpler, leaner and more profitable company” as part of a reset strategy. It’ll offload $20bn in assets by 2027 to pay down its roughly $26bn debt pile, starting with a part sale of its stake in Castrol lubricants, which should bring in $6bn. Another plus is that BP has made a string of oil discoveries.
There’s still a huge debate about the impact of climate change and China’s renewable charge – that I’m not going to get into. There’s no debate about the dividend though. The forecast 2026 yield of 5.8% will convince many income seekers almost on its own. BP also runs a generous share buyback programme, worth $750m in the latest quarter.
BP generates significant free cash flow, with a commitment to return 30% to 40% of operating cash flow to shareholders, via dividends and buybacks.
Ultra-high price-to-earnings ratio
Some investors will have noticed BP’s extremely high price-to-earnings (P/E) ratio of 245. That’s down to a 97% fall in earnings per share across full-year 2026. The forecast P/E of about 11.8 for 2026 looks more sensible.
So what do the experts say? They’re pretty positive, with consensus forecasts producing a one-year share price target of just under 500p. That’s 19.9% higher than today’s 417p. Add that forecast yield, and the total return is 25.7%. Which would turn £10,000 into £12,570. I’d be happy with that.
In the short term, BP shares are likely to remain volatile. Investors should only buy with a long-term view. Fossil fuel demand won’t disappear overnight, even as renewables grow. But with the oil price stuck at $60, BP won’t be making any investor rich overnight.
This is a cyclical stock. I think BP will come good, but may have to be patient. That’s fine. While I wait, I’ll admire all the dividends I’ll be receiving. While hoping those broker forecasts are right.
